Deposit protection schemes have been mandatory for a number of years but there still appears to be some confusion when it come to the different types of registration. In this article we explain the differences between the difference scheme types, the approved scheme providers and review the fundamental rules of the deposit protection schemes and the information that must be given to tenants (as well as the implications if this information is not given).
What is the Deposit Protection Scheme?
It has been a legal requirement since the 6th of April 2007 that a tenant’s deposit is registered and protected using an approved Tenancy Deposit Scheme (TDS) for all Assured Shorthold Tenancies. Whenever a new tenancy starts the deposit must be registered with an approved scheme.
What are the approved Schemes?
In England and Wales there are three approved providers:
- Deposit Protection Service
- MyDeposits – including deposits that were held by Capita
- Tenancy Deposit Scheme
In Scotland the approved providers are:
All deposits for an assured shorthold tenancy must be registered with one of the approved providers within 30 days of receiving the deposit and they must, within this timeframe also give the following information to the tenant:
- the address of the rented property
- how much deposit you’ve paid
- how the deposit is protected
- the name and contact details of the tenancy deposit protection (TDP) scheme and its dispute resolution service
- the Landlord’s (or the letting agency’s) name and contact details
- the name and contact details of any third party that’s paid the deposit
- why they would keep some or all of the deposit
- how to apply to get the deposit back
- what to do if you can’t get hold of the landlord at the end of the tenancy
- what to do if there’s a dispute over the deposit
Even if the deposit is paid by someone who is not the person who is living in the property, it still needs to be registered with a scheme.
It is important to note that this information needs to be provided at the start of every new fix term tenancy. So, if at the end of the initial fixed term, another fixed term contract is made, the deposit information needs to be supplied again. The same applies if, at the end of the fixed term, the tenancy rolls on into a statutory periodic tenancy. This happens where no new agreement is signed and the previous agreement did not allow for a rolling periodic tenancy at the end. In this case, a statutory periodic tenancy is created as soon as the previous fixed term ends. This is classed as a new tenancy and the deposit scheme details need to be provided again.
Types of Deposit Protection scheme
There are two main types of scheme that are available, which are custodial schemes and insured schemes:
- Custodial schemes are where the deposit is paid to the scheme provider and they hold they money in their accounts. Typically, these are free to use as the provider makes money through interest earnt on the deposits paid
- Insured schemes are where the landlord or their agent keep the money in their own bank account and simply register the deposit with the scheme provider. As the provider is not getting any revenue through interest payments, there tend to be a monthly charge for these schemes. Obviously, any interest earned on the deposits stays with the landlord or their agent.
What happens if the deposit is not registered?
If a landlord does not register a deposit within the 30-day period or does not give the tenant the prescribed information, the tenant can apply to the courts for compensation. The court has several options which could include:
- Requiring the landlord to return the deposit to the tenant or ordering the landlord to deposit the money into a custodial scheme within 14 days of the order
- The court can order the landlord to pay their tenant up to 3 times the deposit amount within 14 days of the order.
It is important to understand that each event is a separate breach. So not registering is one breach of Section 213 of the Housing Act 2004 and not supplying the prescribed information is a second breach of the same section. Even if the deposit has been registered, but no information given, this is still classed as a breach.
In addition to the court proceedings, if a landlord does not protect the deposit, they will not be able to serve a section 21 notice of eviction on the tenant
If a section 8 eviction is served on a tenant due to rent arrears, the tenant can counterclaim against the unprotected deposit and compensation for that to offset the rent arrears. This could cause the rent to be brought essentially up-to-date and halt the section 8 proceedings.
Remember that is for not registering a deposit or even if registered, not providing the tenant with the required information within the 30 days.
One thing that many people don’t understand is that, if the right information is not given or the deposit not registered at the start of an initial assured shorthold tenancy and then either a second fixed term agreement is signed or the contract rolls over onto a statutory periodic tenancy and the deposit is again not registered or the information not given, the landlord is liable for two defaults on their statutory duties. As such they could be fined up to 6 times the deposit amount by the courts for each breach.
Note that a tenant has up to 6 years from the end of the tenancy to bring any action against a landlord for not registering a deposit or not providing the right information.
At the end of the tenancy
At the end of the tenancy there is typically a check out inspection carried out and this is compared to the check in inspection. If everything is OK, then the landlord must return the deposit within 10 days of that agreement. If there are any disputes over damage, unpaid rent or cleaning, for example, the landlord cannot arbitrarily withhold any of the deposit without agreement from the tenant. This is the same irrespective of whether the deposit is protected in a custodial scheme or an insured scheme. If no agreement can be made, the issue should be referred to the free dispute resolution service offered by the scheme in which the deposit is registered. Evidence needs to be given and the adjudicator will come to a decision which is binding as far as the deposit protection scheme is concerned. The landlord must then return any remaining deposit within 10 days of the adjudication. If either the landlord or the tenant have an issue with the adjudication and can prove that it was wrong either in interpretation of the facts or in law, they can ask for a review. A new adjudicator will be assigned and the decision from the review will be final.
If the deposit was protected under an insured scheme, the landlord or agent should, after repaying the deposit remember to notify the scheme and cancel the registration. If they don’t, they could carry on being charged for the service.
Protecting a deposit with a registered scheme is a legal requirement as is providing the tenant with the prescribed information concerning the deposit. There are penalties associated with non-compliance with the law so it is important that landlords correctly protect a deposit. A landlord can either use a custodial scheme or an insured scheme as long as they use an approved provider.